THE IIT STATE STREET CORPORATION, NFP Chicago, Illinois. FINANCIAL STATEMENTS May 31, 2011 and 2010

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1 Chicago, Illinois FINANCIAL STATEMENTS

2 TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR S REPORT... 1 FINANCIAL STATEMENTS Statements of Financial Position... 2 Statements of Activities... 3 Statements of Cash Flows... 4 Notes to Financial Statements... 5

3 Board of Directors The IIT State Street Corporation, NFP Chicago, Illinois Independent Auditor s Report We have audited the accompanying statements of financial position of The IIT State Street Corporation, NFP (the Corporation ), as of, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Corporation s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Oak Brook, Illinois September 29,

4 STATEMENTS OF FINANCIAL POSITION ASSETS Cash and cash equivalents $ 37,869 $ - Term deposits 1,083,987 - Receivable due from University, net 1,298,572 2,209,411 Assets held by trustee - 19,193 Property, net of accumulated depreciation of $6,804,401 and $5,869,551 at, respectively 23,314,264 23,868,397 Deferred financing costs, net of accumulated amortization of $197,512 and $175,980 at, respectively 489, ,507 TOTAL ASSETS $ 26,224,667 $ 26,608,508 LIABILITIES AND NET DEFICIT CURRENT LIABILITIES Current portion of obligations under capital leases $ - $ 151,500 Accrued expenses and other liabilities Total current liabilities - 151,600 LONG-TERM DEBT, LESS CURRENT MATURITIES ABOVE Notes payable 27,095,000 27,095,000 Obligations under capital leases - 502,000 Total long-term debt 27,095,000 27,597,000 Total liabilities 27,095,000 27,748,600 NET DEFICIT (870,333) (1,140,092) TOTAL LIABILITIES AND NET DEFICIT $ 26,224,667 $ 26,608,508 The accompanying notes are an integral part of the financial statements. 2

5 STATEMENTS OF ACTIVITIES Years Ended REVENUES Rooms revenue $ 2,948,079 $ 3,003,742 Interest 8,987 - Total revenue 2,957,066 3,003,742 EXPENSES General and administrative expenses 1,444,522 1,345,143 Interest 286, ,780 Depreciation 934, ,778 Amortization 21,531 21,531 Total expenses 2,687,307 2,600,232 CHANGE IN NET DEFICIT 269, ,510 NET DEFICIT, BEGINNING OF YEAR (1,140,092) (1,543,602) NET DEFICIT, END OF YEAR $ (870,333) $ (1,140,092) The accompanying notes are an integral part of the financial statements. 3

6 STATEMENTS OF CASH FLOWS Years Ended CASH FLOWS FROM OPERATING ACTIVITIES Change in net deficit $ 269,759 $ 403,510 Adjustments to reconcile change in net deficit to net cash provided by operating activities: Depreciation 934, ,778 Amortization of deferred financing fees 21,531 21,531 Effects of changes in operating assets and liabilities: Receivable from University, net 257,340 (1,272,616) Deferred revenue - (49,203) Assets held by trustee 19,193 - Accrued expenses and other liabilities (100) - Net cash provided by operating activities 1,502,574 - CASH FLOWS FROM INVESTING ACTIVITIES Purchase of term deposits (1,083,987) - Additions to property (380,718) - Net cash used in investing activities (1,464,705) - NET INCREASE IN CASH AND CASH EQUIVALENTS 37,869 - CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR - - CASH AND CASH EQUIVALENTS, END OF YEAR $ 37,869 $ - SUPPLEMENTAL INFORMATION Cash paid during the year for interest $ 286,403 $ 336,780 The accompanying notes are an integral part of the financial statements. 4

7 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The IIT State Street Corporation, NFP (the Corporation ) is an Illinois not-for-profit, tax-exempt organization created on June 25, 2001 to operate exclusively for charitable and educational purposes. The Corporation is organized to operate exclusively for the benefit of, to perform functions of, and to carry out the purposes of Illinois Institute of Technology (the University ), by undertaking such activities such as providing housing for students, faculty, and staff of the University or of other not-for-profit educational institutions affiliated with the University or located on, or adjacent to, the University s main campus located in Chicago, Illinois. The Corporation constructed three five-story buildings containing 114 residential units (accommodating 367 beds). Construction was completed in August The property s average occupancy was approximately 83% and 85% for the years ended, respectively. Cash and Cash Equivalents The Corporation considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Term deposits The Corporation has certificates of deposit that range in maturity from six months to three years. The deposits are carried at cost plus interest earned which approximates fair value. Property Property is recorded at cost. Replacements and improvements are capitalized, while repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful life of the asset, which for the building is 40 years, for building improvements 20 years, for furniture, fixtures, and equipment 10 years. The Corporation periodically reviews the carrying value of the property to determine if circumstances exist indicating impairment in the carrying value of the investment in the property or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, the Corporation will prepare an estimate of the undiscounted future cash flows, without interest charges, of the property and determine if the investment in such property is recoverable based on the undiscounted future cash flows. If impairment is indicated, an adjustment will be made to the carrying value of the property to reflect the property at fair value. The Corporation does not believe that there are any factors or circumstances indicating impairment of any of its investment at. 5

8 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Assets Held by Trustee Remaining proceeds from the 2002 bond issue were maintained and monitored by a trustee, per contractual requirements of the bond issue. These proceeds were reported as assets held by the trustee and were held for debt service reserves as required by contractual obligations of the Corporation s original letter of credit. These assets were recorded at cost of approximately $1.8 million at May 31, During fiscal year 2007, the Corporation entered into a new letter of credit agreement, which removed the requirement for the debt service reserve. As a result, approximately $1.6 million was released from the trustee. At, approximately $0 and $20,000, respectively, was held by the trustee to fund ongoing capital projects at the property. See further discussion in Note 2. Derivative Instruments All derivatives are recognized in the Statements of Financial Position at their fair value. The Corporation only enters into derivative contracts that limit the variability of cash flows to be paid related to long-term debt (interest rate cap in 2006). That is, the Corporation does not speculate using derivative instruments. In addition, the Corporation does not apply hedge accounting to those derivative instruments; therefore, any changes in the derivative's fair value are recognized in earnings. No derivative instruments were used during the fiscal years ended May 31, 2011 and Deferred Financing Costs Bond issuance costs were paid from the proceeds of the bond offering. See Note 2. Such costs have been capitalized and are amortized over the life of the related bonds on a straightline basis, which is not materially different from the effective interest method. Tax-Exempt Status The Corporation has received a determination letter from the Internal Revenue Service (IRS) indicating it is a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code and, except for taxes pertaining to unrelated business income, is exempt from federal and state income taxes. No provision for income taxes was required for the years ended May 31, 2011 and The Corporation adopted the requirements for accounting for uncertain tax positions. The Corporation determined that it was not required to record a liability related to uncertain tax positions. The federal and state tax returns of the Corporation for 2007, 2008, and 2009 are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed. 6

9 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Use of Estimates in Preparing Financial Statements The preparation of financial statements in conformity with United States generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Room Revenue Room revenue is recognized on a straight-line basis over the terms of the related leases. Lease terms are generally for one year or less. Deferred Revenue Room revenue collected in advance for summer programs is deferred until the fiscal year of the related program. Basis of Accounting The financial statements of the Corporation have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables, and other liabilities. Financial Statement Presentation Financial statement presentation follows GAAP for not-for-profit organizations. GAAP requires the Corporation to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. As of, the Corporation had no temporarily or permanently restricted net assets. In addition, the Corporation is required to present a Statement of Cash Flows. NOTE 2 - NOTES PAYABLE In May 2002, the Illinois Educational Facilities Authority (IEFA) executed the issuance and sale of $28,635,000 aggregate principal amount of Student Housing Adjustable Rate Demand Revenue Bonds, Series 2002A (Series 2002A Bonds) and $165,000 aggregate principal amount of Taxable Student Housing Adjustable Rate Demand Revenue Bonds, Series 2002B (Series 2002B Bonds). The Series 2002B Bonds matured on June 1, 2004, at which time the amount outstanding was paid in full. 7

10 NOTE 2 - NOTES PAYABLE (continued) The Series 2002A Bonds are secured by a letter of credit and bear interest at a weekly interest rate that is sufficient to produce a par bid (an effective interest rate of 0.22% and 0.33% as of, respectively), not to exceed 12% per annum. Such interest rate may be converted to a different interest rate mode, as defined in the agreement, with the approval of the letter of credit issuer. The Series 2002A Bonds mature on June 1, The proceeds from the issuances and sale of the Bonds were used to make loans to the Corporation. The Corporation used the proceeds to (i) finance the construction, installation, and equipping of a new 114-unit student housing project (the Project) on the University's main campus to house 367 students, staff, and faculty of the University; (ii) to fund a debt service reserve fund which is held by a trustee; and (iii) pay certain costs incurred in connection with the bond issue. The note payable, in the amount of $28,635,000, is secured by the gross revenue, as defined, of the Project. The payment of principal and the accrual of interest requirements are identical to those of the Bonds. On September 1, 2006, the Corporation entered into a new letter of credit agreement. The terms of the letter of credit agreement eliminated the requirement for the debt service reserve fund for the series 2002A Bonds and restructured the scheduled principal payments to be interest only through Interest and principal payments are then required beginning June 1, 2012 and the remaining outstanding balance due at maturity, June 1, In accordance with the terms of the new letter of credit, the debt service reserve fund was liquidated and the funds remitted to the Corporation. The Corporation used the funds to fully retire a note payable to affiliate; call and pay down approximately $295,000 of the Series 2002A Bonds; fund approximately $160,000 in capital projects, fund costs associated with the transactions, and refund approximately $600,000 to Wachovia. The following is a summary of required principal payments for the notes payable: Fiscal Years Ending 2012 $ , , , ,000 Thereafter 26,065,000 Total $ 27,095,000 8

11 NOTE 3 - PROPERTY, PLANT AND EQUIPMENT Property, plant, and equipment at are summarized as follows: Building $ 27,627,652 $ 27,613,665 Building improvements 931, ,283 Furniture, fixtures and equipment 1,559,795 1,486,000 Total 30,118,665 29,737,948 Less accumulated depreciation 6,804,401 5,869,551 Total property, plant and equipment $ 23,314,264 $ 23,868,397 NOTE 4 - TRANSACTIONS WITH RELATED PARTIES At, the Corporation had net accounts receivable of $1,298,572 and $2,209,411, respectively, due from the University. The receivable is non-interest-bearing and is payable on demand. NOTE 5 - COMMITMENTS AND CONTINGENCIES Letter of Credit In May 2002, in order to enhance the marketability of the Bonds, the Corporation executed a letter of credit agreement with a third party lender in the amount of $28,964,250, of which $28,350,000 was to support the unpaid principal amount of the Bonds and $614,250 was to support up to 65 days accrued interest thereon, at an assumed interest rate of 12% per annum. In September 2006, the Corporation terminated its existing letter of credit and entered into a new letter of credit with a different third party lender. The current letter of credit, which expires on August 31, 2013, is in the amount of $27,652,644, of which $27,095,000 is to support the unpaid principal amount of the Bonds and $557,644 is to support up to 35 days of accrued interest. At, no amounts were drawn against the letter of credit. The letter of credit contains various covenants which have either been met or waived as of May 31, 2011 and Ground Lease In May 2002, the Corporation entered into an agreement to lease the land underlying the Project from the University for an annual fee of $5,342. The term of the lease is 40 years and expires on May 31,

12 NOTE 5 - COMMITMENTS AND CONTINGENCIES (continued) Furniture Lease The Corporation entered into a capital lease of furniture, fixtures, and equipment (Furniture) with the University on August 1, The terms of the 10-year lease state that the Corporation may not sell, pledge, mortgage, or otherwise encumber any of the Furniture. As of May 31, 2011 and 2010, $1,486,000 is included in property representing the fair value of the Furniture at lease inception. As of, accumulated depreciation of $1,151,650 and $1,003,050, respectively, was related to the Furniture. Accordingly, $148,600 of depreciation expense for the years ended is related to the Furniture. The effective interest rate of the lease is approximately 3.85%. During the year ended May 31, 2011, the Corporation and the University agreed to end the capital lease agreement. The receivable due from the University was reduced by $653,500 which represents the previous amount outstanding on the capital lease liability. This transaction represented a non-cash financing activity. Operating Lease On December 30, 2003, the Corporation entered into an operating lease with the University, whereby the University committed to lease unoccupied beds at the Project sufficient to allow the Corporation to achieve a debt service ratio of 1.0. The lease was for five years. On August 30, 2006, the Corporation amended the lease which extended the expiration date to September 30, The lease shall automatically renew for successive one-year periods after this date. For the years ended, it was not necessary for the University to lease unoccupied beds due to the Corporation achieving a debt service ratio of 1.0. Management Agreement In May 2002, the Corporation entered into a management agreement with the University's housing office (the Manager ). The Manager is responsible for the collection of all fees, payment of operating expenses, performance of certain management obligations, as defined in the agreement, and leasing of the facilities upon completion of the Project. The management agreement took effect on August 1, 2002 and has been extended annually thereafter, and will be extended automatically for additional one-year terms, unless either party provides notice of termination. Management fees of $32,042 and $33,893 are included within general and administrative expenses in the accompanying Statements of Activities as of May 31, 2011 and 2010, respectively. Therefore, the receivable due from affiliate, net, shown on the Statements of Financial Position, represents the difference between fees collected and operating expenses paid by the University on behalf of the Corporation. 10

13 NOTE 6 - RECLASSIFICATIONS Certain amounts from the year ended May 31, 2010 presentation have been reclassified to conform with the May 31, 2011 presentation. These reclassifications had no effect on either total net deficit or the change in net deficit previously reported. NOTE 7 - SUBSEQUENT EVENTS Management evaluated subsequent events through September 29, 2011, the date the financial statements were available to be issued. Events or transactions occurring after May 31, 2011, but prior to September 29, 2011 that provided additional evidence about conditions that existed at May 31, 2011, have been recognized in the financial statements for the year ended May 31, Events or transactions that provided evidence about conditions that did not exist at May 31, 2011, but arose before the financial statements were available to be issued have not been recognized in the financial statements for the year ended May 31, This information is an integral part of accompanying financial statements. 11